DEVELOPMENTS generally comprise two types of costs:
- SOFT costs being the Designers, Engineers, Planners, Project Managers, Cost, Planning and Specialist Consultants.
. - HARD costs, which are actual physical building costs, Builder preliminaries and Contingencies.
Both of these costs need to be managed. But there are two specific traps to avoid when reviewing initial planning soft costs — so that your soft costs do not blow the budget later on.
Consider Actual Fees for Service
Ensure your design consultants show you the build cost value (expected hard cost) of the works that their fee relates to (ie: 2% to 8% of expected hard costs).
These can be understated originally — then the price creeps up as consultants find out the real build costs.
We recommend that you be as up front and honest as possible with your consultants about the hard costs. If you are on a percentage fee basis, it very hard to backtrack after you have signed a contract with a consultant. ie: Architect or Engineers.
Disbursements
These can be a large hidden cost for some projects.
When commercial rates start to be applied to each progress claim for plan printing, various investigations, each application for information for the design work, etc. You can pay between $1.50 and $5.00 per plan print!
Keep in mind the cost of hourly rates for extra services.
To win work, some consultants will initially keep their fees down; then increase them throughout the project.
This can impact the original budget, if it is not identified before construction actually starts.
We recommend that you thoroughly read the fee submissions for exclusions and disbursements. Commercial rates can add up pretty quickly during an extended project, with consultants invoicing you monthly (ie: incidental and extra hours).
BOTTOM LINE: Developers & investors often keep soft costs low so the feasibility looks better — then get a shock when the costs start to rise against initial budgets.
Be thorough and meticulous when reviewing fees and disbursements. If handled incorrectly, soft costs can affect the bottom line, cause disagreements and destroy business relationships.
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